Pros And Cons Of Debt Settlement

By Author: Stam Bett
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Are you thinking about hiring debt settlement services from a company or law firm? Consumers in the United States have a number of options to get rid of debt but all come with their own costs, whether you live a more frugal lifestyle for a while to pay off the debt involve a debt settlement attorney to negotiate the amount for you or declare bankruptcy. If you're leaning toward debt settlement, make sure you begin by understanding exactly what this means.

Is Debt Settlement Right for Me?
Debt settlement companies have a bad reputation these days and it has been earned in some cases. The first thing you should do before hiring anyone is understanding your rights under the law, as these companies can't collect any fees until they've negotiated at least one account and they're under strict regulations. Debt settlement is typically only an option for people facing a great deal of debt and already considering bankruptcy.

Pros of Debt Settlement
If you're ready to move past your debt and accept the cost involved, but you don't want to declare bankruptcy, debt settlement may be an option. Most creditors ...
... are willing to negotiate the amount you owe as they know this way they will at least get something, whereas they will most likely receive nothing if you're forced into bankruptcy. Here are the biggest advantages to settling debt:
• Be debt-free in 24-36 months, assuming you're dealing with reliable debt settlement companies who are upfront about how long you'll be in debt.
• You can settle debts for less than you owe, potentially saving 50-60%. Of course, this doesn't include the cost you may the law firm or company and their fee may sometimes be a percentage of your savings.
• There may be creditors who agree to re-age your account and make it current, improving your credit score.
• Unsecured debt higher than $1,000 can often be included in an arrangement.
• For the most part, settled debt will not be subject to continued legal action.
• You'll free up money to pay for the important things in life.

Downsides of Debt Settlement
Along with the freedom you can achieve by working with debt settlement lawyers or companies, there are definitely some downsides you need to consider before you pursue this option. You need to be very careful about who you deal with and it's usually best to work with attorneys who don't advertise themselves as "debt settlement lawyers," meaning they will negotiate with creditors for you but this isn't their primary practice.
• When you enter into an arrangement with a company, you will need to stop paying creditors directly and instead route payments to the company itself. In some cases, your credit score could worsen as negative marks accumulate on your credit file until settlement payments begin.
• Your credit will be damaged as accounts will be "paid by settlement."
• Many debt settlement companies will attempt to charge you a huge upfront fee and monthly fee and wait to pay creditors until money builds up in your account. Never work with a company that demands money up-front for debt settlement!
• While you should pay your creditors less, you'll also need to pay some of the debt to the company itself. Make sure you understand the cost/benefit analysis here and how much of your money will not go to the creditors.
• Debt settlement can only be used for unsecured loans, not a mortgage or car loan.
• Forgiven debt will become taxable income and reported to the IRS, so you may have a much larger and unexpected tax bill after settling a lot of debt.
• Not all creditors will settle debt.
• If the creditor doesn't give you a written notice that the debt was forgiven, it could be sold to a different collection agency so always get written proof.
• Debt settlement companies are forbidden in some states and the industry has a huge stigma because of questionable practices of some companies.

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